Parents are looking at a future for their kids outside South Africa

 ·31 May 2024

There is a notable trend of parents in South Africa looking to save for overseas universities as they’re concerned about the country’s future—and if you look at performance indicators over the past 30 years, you can’t blame them.

South Africa was very optimistic when Ramaphosa took over from former President Jacob Zuma on 15 February 2018.

This period was referred to as ‘Ramaphoria’, and the public and business community had high hopes that Ramaphosa would bring about significant reforms.

However, this optimism waned as the country experienced a rapid deterioration of infrastructure, state-owned enterprises, and government institutions.

Load-shedding became a daily occurrence, Transnet collapsed, crime reached record levels, and trust in the state continued to drop amid other global crises, including the Covid-19 pandemic, geopolitical conflict, and high levels of inflation.

The lack of significant economic growth and a rapidly increasing population caused South Africans to become much poorer in US dollar terms.

A comparison of the performance of the JSE All Share Index (ALSI) with the Nasdaq-100, S&P 500, and MSCI World Index demonstrates the extent of the value destruction during the Ramaphosa administration.

Since Ramaphosa took office in February 2018, the Nasdaq-100 increased by 147%, the S&P 500 by 75%, and the MSCI World by 49%.

In contrast, the ALSI declined by 22% in US dollar terms, making it one of the worst-performing exchanges globally.

This has caused concern among young families, said Marnus Mostert, a franchise principal and financial adviser.

Marnus Mostert

“I have noticed a trend where people are asking about funding solutions for offshore universities,” he said.

This is because parents want to ensure quality education and a prosperous future for their children.

Mostert illustrated their concerns by examining the performance of the rand-dollar exchange rate over the past 18 years and projecting it forward over the next 18 years (assuming your child was born in 2024).

He noted that the rand has weakened 5.9% annually over the last 18 years, meaning that if the same figures were to repeat, the rand/dollar would be R51.57/$ in 18 years.

This is dangerous if you’ve only invested in local assets while investing overseas could provide a win-win situation for parents.

“If the state of the country reaches levels where offshore universities are a necessity, you have already externalised funds over the 18 years and are not forced to do so at an R51.57/$ rate. This will make the university unaffordable.

If the local universities are still viable options in 18 years, you can bring back your foreign currency for education purposes. 

An example of this is the performance of the S&P 500.

The S&P 500 annualised return is 9.72% on its own; however, in Rand terms, it has been 16.18% per annum for the last 18 years (this factor in the return combined with the weakening of the rand).

Read: What you need to save to send your child to university in South Africa – starting from when they’re born

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